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• Mood: geeky
• Music: Randy Newman-"It's Money Than Matters"

On the President's Desk: The Stock Market

The stock market is often thought to be the playground of the rich, something that ordinary working people have no concern with. While many people do not hold stock portfolios or buy and sell stocks, or even have a clue what takes place on a trading floor, the markets do effect their lives. Many pension plans, retirement savings plans, and education savings plans generate revenue through the buying and selling of stocks from the various sectors, where a rate of return above ordinary bank-rate interest can be earned. The health or otherwise of the stock market can also be an indication of the state of the economy in general. While individual presidents do not control the stock market, many rely on the performance of the stock market as an indication of how well their economic policies are working. Sometimes a mere change in leadership in the oval office can trigger a rise in the stock market indices, as an indication of optimism about the future, such as when Ronald Reagan replaced Jimmy Carter in 1981 or when FDR won the Presidency from Herbert Hoover. More recently, President Donald Trump has claimed that the impressive performance of the stock market is a positive review of the direction he has plotted for the nation. Stocks rose in nine of the first ten months of the Trump Administration, a record that no other U.S. president has matched.

The plotting of stock indices began in 1897 when William McKinley was President. The leading gauges of market performance were the Dow Jones Industrial Average, and more recently the Standard & Poor’s 500 Index, which began in 1928. The table below, compiled by Forbes Magazine, shows the annualized rate of return achieved by presidents during their presidencies. The table was published in October of 2017 and reflects the first 10 months of President Trump's administration.



Overall, five presidents (Harry Truman, Dwight Eisenhower, Gerald Ford, Bill Clinton and Barack Obama) all presided over a healthier stock market over the course of their presidency. In his first ten months in office, President Trump had the most month of market increases, with nine. He is followed by William Howard Taft, Harry Truman, Lyndon Johnson and John Kennedy, each with eight. This is mostly a snapshot and does not portend how the market will turn out for the entire presidency. For example over Taft’s presidency, market growth was slightly negative, and both Johnson and Kennedy ended up with below-average stock market performance.

During peace time, presidents have presided over a better performance by the markets than their contemporaries during war time. Lyndon Johnson and Richard Nixon presided over the Vietnam War and neither enjoyed a robust stock market performance. George W. Bush, president during the terrorist attack of 2001, also had a negative return, as the country struggled with how to respond to terrorism, and later with the beginning of the Great Recession. The market did well during Franklin D. Roosevelt's presidency during wartime, rising 117% during the three years and nine months that the U.S. was fighting in World War II. Recovery from the Great Depression held down his overall return.

According to John Dorfman of Forbes, neither Democratic nor Republican administrations have a monopoly on wealth creation. Ned Davis Research studied returns on the Dow Jones Industrial Average since 1901 under Democratic and Republican presidents and concluded that stocks do better on average under Democrats, but that difference is not that significant (2.76%) when inflation was taken into account. Similarly, when one looks at the party balance in Congress, the Dow Jones industrials gained 7.97% when Republicans controlled both houses, gained 5.47% when the Democrats controlled both, and lost 0.80% when Congress was split.

Since January of 2018, the markets have entered a correction. President Trump’s move to impose tariffs on foreign steel and aluminum and goods from China has concerned Wall Street. Worries about a growing trade war have adversely affected market performance. Trade wars, talks of withdrawing from institutions such as the World Trade Organization, and other factors have slowed the market down. There are also some things that are out of the President’s control, such as the Federal Reserve’s plans to raise interest rates. Unemployment is at 3.8 percent, a two-decade low. But some analysts expect another recession, perhaps by the time of the 2020 presidential elections.



The cyclical nature of the markets should make a president reluctant to tie his or her fortunes to the performance of the market. While the president can not control the performance of the markets directly, monitoring them is an activity that can be found on the president's desk as an indication of what the future holds for the nation's economic fortunes.